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24–086 PDF 2005

DHS IN TRANSITION: ARE FINANCIAL MANAGEMENT PROBLEMS HINDERING MISSION EFFECTIVENESS?

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

FINANCE, AND ACCOUNTABILITY

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

JULY 27, 2005

Serial No. 109–82

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

TOM DAVIS, Virginia, Chairman

CHRISTOPHER SHAYS, Connecticut

DAN BURTON, Indiana

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

GIL GUTKNECHT, Minnesota

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

CANDICE S. MILLER, Michigan

MICHAEL R. TURNER, Ohio

DARRELL E. ISSA, California

GINNY BROWN-WAITE, Florida

JON C. PORTER, Nevada

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

CHARLES W. DENT, Pennsylvania

VIRGINIA FOXX, North Carolina

——— ———

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

CHRIS VAN HOLLEN, Maryland

LINDA T. SANCHEZ, California

C.A. DUTCH RUPPERSBERGER, Maryland

BRIAN HIGGINS, New York

ELEANOR HOLMES NORTON, District of

Columbia

———

BERNARD SANDERS, Vermont

(Independent)

MELISSA WOJCIAK, Staff Director

DAVID MARIN, Deputy Staff Director

ROB BORDEN, Parliamentarian

TERESA AUSTIN, Chief Clerk

PHIL BARNETT, Minority Chief of Staff/Chief Counsel

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, FINANCE, AND ACCOUNTABILITY

TODD RUSSELL PLATTS, Pennsylvania, Chairman

VIRGINIA FOXX, North Carolina

TOM DAVIS, Virginia

GIL GUTKNECHT, Minnesota

MARK E. SOUDER, Indiana

JOHN J. DUNCAN, JR., Tennessee

EDOLPHUS TOWNS, New York

MAJOR R. OWENS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

EX OFFICIO

HENRY A. WAXMAN, CALIFORNIA

MIKE HETTINGER, Staff Director

TABETHA MUELLER, Professional Staff Member

NATHANIEL BERRY, Clerk

ADAM BORDES, Minority Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on July 27, 2005 ............................................................................... 1

Statement of:

Hale, Janet, UnderSecretary for Management, Department of Homeland

Security; Andrew Maner, Chief Financial Officer, Department of Homeland Security; Linda Combs, Comptroller, Office of Federal Financial

Management, Office of Management and Budget; and Richard Skinner,

Acting Inspector General, Department of Homeland Security ................. 6

Combs, Linda ............................................................................................. 23

Hale, Janet ................................................................................................. 6

Maner, Andrew .......................................................................................... 11

Skinner, Richard ....................................................................................... 29

Letters, statements, etc., submitted for the record by:

Combs, Linda, Comptroller, Office of Federal Financial Management, Office of Management and Budget, prepared statement of ........................... 25

Hale, Janet, UnderSecretary for Management, Department of Homeland

Security, prepared statement of .................................................................. 8

Maner, Andrew, Chief Financial Officer, Department of Homeland Security, prepared statement of .......................................................................... 14

Platts, Hon. Todd Russell, a Representative in Congress from the State

of Pennsylvania, prepared statement of Mr. Ervin .................................... 4

Skinner, Richard, Acting Inspector General, Department of Homeland

Security, prepared statement of .................................................................. 31

(1)

DHS IN TRANSITION: ARE FINANCIAL MANAGEMENT PROBLEMS HINDERING MISSION

EFFECTIVENESS?

WEDNESDAY, JULY 27, 2005

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

FINANCE, AND ACCOUNTABILITY,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 2 p.m., in room

2247, Rayburn House Office Building, Hon. Todd Russell Platts

(chairman of the subcommittee) presiding.

Present: Representatives Platts, Gutknecht, Duncan, and Towns.

Staff present: Mike Hettinger, staff director; Dan Daly, counsel;

Tabetha Mueller, professional staff member; Jessica Friedman, legislative assistant; Nathaniel Berry, clerk; Hailey Gilmore and

Lauren Kovarik, interns; Adam Bordes, minority professional staff

member; and Jean Gosa, minority assistant clerk.

Mr. PLATTS. This hearing of the Government Reform Subcommittee on Government Management, Finance, and Accountability will

come to order.

We are going to begin with opening statements, with the hope of

getting through both Member and witness opening statements before the first round of votes, then have probably about a 25 minute

recess during the votes, and then come back to Q and A, depending

on the time of Mr. Towns, Mr. Souder, and others who we believe

will join with us at some point. Either they will offer their statements for the record or have opportunity to present them, as well.

Financial management of the Department of Homeland Security

is regrettably somewhat in disarray. Recent reports have revealed

serious accounting problems, including mismanagement of large

contracts at the Transportation Security Administration, ineffective

control of grants processing, and budget shortfalls at the Bureau of

Immigration and Customs Enforcement.

In a statement prepared for this hearing, former DHS Inspector

General Clark Kent Ervin highlighted the operational impact of

this budget shortfall, and I would like to read a brief statement

from that ‘‘ICE was forced to institute a hiring freeze. The agents

had insufficient funding to fill their cars with gas, pay confidential

informants, and even use their cell phones.’’

We owe it to the men and women who protect our borders and

put their lives on the line day in and day out to do a better job

managing their department. We owe it to the taxpayers to do a

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much better job keeping track of the dollars they entrust to us to

secure the homeland.

We cannot continue to have contracts mishandled because the

appropriate controls are not in place. We cannot continue to spend

money and not know where it went. We cannot continue to experience budget shortfalls because projections were made with unreliable and inaccurate data. This must be a top priority for Secretary

Chertoff and all senior management officials at the Department.

Luckily, we have a blueprint for a sound financial management

foundation: the Chief Financial Officers Act of 1990. The CFO Act

was debated over a period of 5 years and passed in response to financial management crises not unlike those currently being experienced at DHS. The CFO Act established a centralized financial

management structure designed to provide CFOs with the authority to make improvements and the responsibility to be held accountable for their efforts. This law applies to every major department in the U.S. Government.

Congress provided an important tool by applying the provisions

of the CFO Act to the Department of Homeland Security, giving

the Department a mandate to adopt the appropriate financial management foundation. Behind the scenes, this committee has been

working for over a year with the Department to ensure that this

law was appropriately implemented and that all requirements were

met. We worked with the Department in good faith, allowing a

dual reporting structure so that the CFO could interface both with

the undersecretary for management, while still reporting directly to

the Secretary.

The Department recently completed its second stage review; but,

unfortunately, the version of the new organizational chart that the

Secretary presented to the Congress and the public did not include

any reference whatsoever to the Office of the CFO. I am pleased

to say that a new version of this chart, which I received last

evening, does, in fact, represent a structure that gives the CFO a

clear delineation and direct reporting relationship to the Secretary.

We do not presume to think that implementing this structure

will be a silver bullet and solve all the problems at DHS, but it is

a foundation that will ensure that financial management is a top

priority and that the CFO has the necessary standing to impose

the needed reforms, and that this standing and prioritization is understood throughout the Department and with all partners of the

Department.

One requirement of the law that has not been addressed, however, is the fact that the CFO candidate must be confirmed by the

Senate—something that has not yet occurred. I am interested to

hear what steps will be taken to remedy this situation and where

we currently stand.

Yesterday marked exactly 58 years since President Truman

signed the National Security Act, creating the Department of Defense on July 26, 1947. In the nearly six decades since its creation,

DOD has yet to get a handle on its financial management. We cannot afford to have DHS go down the same road, and appropriate

focus on financial management sooner rather than later at the Department of Homeland Security is a key step to avoiding a repeat

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of DOD’s longstanding financial problems. Complying with the

CFO Act is not onerous, and it is clearly not optional.

Today we are pleased to hear from the Honorable Janet Hale,

Undersecretary for Management at the Department of Homeland

Security; Mr. Andy Maner, the Department’s Chief Financial Officer; the Honorable Linda Combs, Comptroller of the Office of Federal Management at the Office of Management and Budget; and

the Honorable Richard Skinner, the Acting Inspector General at

the Department of Homeland Security.

We certainly thank each and every one of you for being here,

along with your staff—your presence here today, as well as the testimony in writing you submitted in advance, and your willingness

to take our questions.

Before we continue, I would like to ask unanimous consent—as

the only one present, I guess that will be an easy one. We will

probably reaffirm that with Mr. Towns once he arrives. We would

include the statement I referenced from former Inspector General

Clark Kent Ervin. That statement will be included in the record.

[The prepared statement of Mr. Ervin follows:]

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Mr. PLATTS. While we await Mr. Towns’ arrival, and that may

occur after the votes, I think what we will do is proceed to our witnesses’ opening statements. As a practice of the full committee and

the subcommittee, we would ask all of our witnesses to stand and

be sworn in, and any staff that will be giving you guidance as a

part of your testimony, if they would also stand and be sworn.

[Witnesses sworn.]

Mr. PLATTS. Thank you. The clerk will note that all witnesses affirmed the oath.

Again, we appreciate your written testimonies. If you can do your

best to try to stay to about 5 minutes, that would allow us to hopefully get everyone in before the votes.

Secretary Hale, we will begin with you.

STATEMENTS OF JANET HALE, UNDERSECRETARY FOR MANAGEMENT, DEPARTMENT OF HOMELAND SECURITY; ANDREW MANER, CHIEF FINANCIAL OFFICER, DEPARTMENT

OF HOMELAND SECURITY; LINDA COMBS, COMPTROLLER,

OFFICE OF FEDERAL FINANCIAL MANAGEMENT, OFFICE OF

MANAGEMENT AND BUDGET; AND RICHARD SKINNER, ACTING INSPECTOR GENERAL, DEPARTMENT OF HOMELAND SECURITY

STATEMENT OF JANET HALE

Secretary HALE. Thank you, Mr. Chairman. Thank you for having all of us here today to reemphasize our personal commitments

as well as the professional commitments of the Department of

Homeland Security to financial integrity and accountability.

As you have heard all of us say over the last 21⁄2 years, this was

a divestiture, a merger, an acquisition of a dot com, and startup

of an international conglomerate. It was brought together to

strengthen the security of this homeland, but to do so with integrity and strong financial resources being dedicated to that frontline mission. That is why it is so important for us to do just the

sort of things that you have referenced in your opening remarks. There were 180,000 people, $31 billion, and 22 agencies that

came into this Department. We took our stewardship of both frontline mission, but integration of those programs with, again, maximizing the resources to the front line and being able to consolidate

into a much more efficient and effective manner over these last 21⁄2

years. In my testimony you will see some of the accomplishments.

I am so proud of the men and women who have been able to accomplish that.

Secretary Chertoff in his very early days reemphasized, as he did

again in the last 2 weeks when he reemphasized in second stage

review, the importance of financial integrity and procurement. He

asked Acting I.G. Rick Skinner and the Chief Procurement Officer,

Greg Rothwell, to come to his office in those very early days to sort

of say how can we exactly address the sort of issues that you have

talked about. He wants to be sure that we spend the taxpayers’

money wisely and, in fact, has asked all of us to be vigilant of that

task.

You did reference in his second stage review the organization

chart, and I would like to just emphasize again to you, sir, that

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this was an attempt to actually lay out the organizational structure. I was pleased to be able to submit with my testimony that

clarification. There is no doubt in our mind that Andy Maner, the

CFO, is a direct report to the Secretary, and I do truly appreciate

your leadership in recognizing the dual report in your legislation.

Andy, the CFO, needs to have that relationship with the Secretary, the Deputy Secretary, and with the agency heads, as well

as the dual report, so he has that. He has it through small, but tremendously meaningful daily meetings with the Secretary. He has

it in sort of the ability to develop, formulate, and execute the budget and to lead the financial management aspects of the Department. We see him as a leader. We see that access, that direct report, but also that dual report is incredibly important.

I would like to just take a couple seconds on why that dual report is important because we all recognize that support and access

that he needs to have to the Secretary. But, as you referenced, the

Chief Procurement Officer, the Chief Information Officer [CIO], the

Chief Human Capital Officer—that is a management team that, in

fact, the synergies between them can strength and guide our financial management and our accountability throughout the Department. I think they have been a great team, and I think that dual

report is one that has been important. Again, sir, I recognize and

thank you for that leadership in recognizing that.

You asked about the requirement of the law to submit a nomination for the CFO. We do take that seriously in the Department. As

you and I have talked and as others in the Department have talked

with you, we are actively recruiting a CFO and hope to have one

selected in the very near future. I can and will again reaffirm to

you that we will keep this committee apprised of the progress and

actually look forward to having a selection, as I said, in the near

future.

We take this act seriously. We take your leadership and your

stewardship and your oversight of the Department seriously. I actually think that I will leave the details of the financial act to Andy

Maner as he talks about it. But, again, I want to thank Andy for

his professional leadership in the CFO as he has done it before the

act and during the act.

Thank you, Mr. Chairman, for the opportunity to testify in front

of you today.

Mr. PLATTS. Thank you, Madam Secretary.

[The prepared statement of Secretary Hale follows:]

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Mr. PLATTS. Mr. Maner.

STATEMENT OF ANDREW MANER

Mr. MANER. Thank you, Mr. Chairman. I want to also thank you

for inviting me up here today. It has been about a little over a year

since I have been up here. I just would ask that my full written

statement be submitted for the record.

I appreciate the work that this committee has undertaken and

its ongoing concern and support for financial accountability at

DHS. I also appreciate the support of my fellow panel partners

here that they have given to DHS as we have stood up the Department in our efforts to instill sound practices throughout the Department. The recent attacks in London remind us DHS has an incredibly important mission. Protecting this Nation and its citizens

from the threat of terrorism is why this Department was created

and is the No. 1 priority of this Department.

That said, as Undersecretary Hale alluded to, financial management is also extremely important. Secretary Chertoff, in his announcements this month, has reaffirmed his commitment to the

stewardship of national resources as an element and one of the key

imperatives that he wants to monitor as we drive his near-term

agenda at DHS.

The vision for financial management at DHS is one where there

exists a framework of people, processes, and systems which stakeholders such as leaders, managers, people like myself are to have

accurate, timely, and useful information to make effective decisions

in support of our missions. This vision means that we can support

an unqualified opinion on our financial statements, we can make

reasonable assurances over our internal controls, and we can relate

our spending to our performance, and that we have an integrated

financial management system or group of systems, and, finally,

that we have a cadre of dedicated and highly talented financial

managers to pull this together.

As CFO of the Department, I am keenly aware of the importance

of sound financial management and am proud of the great progress

the Department has and continues to make in furtherance of this

vision.

In January we set forth a 3-year strategy for receiving unqualified opinion on our consolidated financial statements and eliminating all material weaknesses. This strategy involves achieving full

visibility of our financial management issues and challenges, correcting our material weaknesses, and complying with the internal

control provisions of the Financial Accountability Act.

We are hard at work on correcting material weaknesses identified in our 2004 audit. Many of the underlying issues behind the

weaknesses are very complex, and in most cases have no quick fix,

but we are taking aggressive, methodical, and appropriate steps to

address them.

As for the material weaknesses involving financial management

and the structure and processes in my office and around my office,

significant accomplishments have been made to date. We have instituted stronger quality control processes by issuing guidance to

our components much earlier in the process. We have hired and

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contracted many additional skilled accounting personnel. In fact,

the FTE in my office has nearly doubled since I was here last.

We have initiated a comprehensive internal control assessment

of our process. We have significant open communication and regular reporting with the Secretary, his team, key leadership, and

stakeholders such as OMB, the IG, GAO, and our auditors.

The Secretary has clearly communicated in writing our goals for

financial improvement to our agencies. We have actively engaged

our components through monthly CFO councils, weekly working

groups, and, of course, our internal control meetings. All organizations with internal weaknesses have developed their corrective action plans and spell out how they will remediate these actions. We

hired a Deputy CFO who is probably among the best in Government to lead a lot of these efforts.

We are also making progress in our efforts to improve our financial management systems, which is a key component of all this.

Since I have testified before this committee, we have completed an

exhaustive Department-wide requirements definition and design

phase, hired a systems integrator; and we have identified a comprehensive, Department-wide, not just Bureau-wide, Departmentwide solution. We have completed an enterprise-wide buy for software. We have begun work on e-travel and on other financial management issues such as a dashboard and other payroll improvements.

We are also developing performance metrics so that we know

how we are doing and our CFOs and other agency heads know how

they are doing against those goals.

As far as implementation of the Financial Accountability Act, we

are making great progress here and I am very proud of our efforts.

While I believe that GAO’s criteria for assessing whether an organization is ready to support such an audit would suggest that

DHS might not be ready, it is, nonetheless, a requirement that we

are addressing with vigor. The task of examining and documenting

internal controls over financial reporting is time consuming and

very challenging, as many in the private sector and the Government would attest, but we agree that it is imperative that DHS

move as swiftly as possible to implement.

As Secretary Chertoff reported to you last month in a letter,

DHS has initiated extraordinary steps to organize the Department

to prepare for and execute an audit of our internal controls. We established an Internal Control Committee comprised of senior DHS

executives to orchestrate our implementation of the act. We have

developed and published an implementation guide for complying

with those provisions of the act. We have initiated a comprehensive

internal control assessment of the reporting processes within my

office, and Coast Guard, one of our largest components, has also

initiated process level documentation files. And over the summer

we will be executing a detailed and technical seven-step plan to

support the Secretary’s assertion this year and to prepare for our

audit next year.

I am obviously very pleased with our trailblazing implementation

of an internal controls process. Implementation concerns aside—

and there are many—the Department’s initial efforts are ernest,

credible, and I intend for DHS to be a leader in the Federal GovVerDate 11-MAY-2000 11:14 Nov 18, 2005 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 D:\DOCS\24086.TXT HGOVREF1 PsN: HGOVREF1
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ernment in establishing best practices in reporting on internal control.

In closing, let me thank you personally and the subcommittee

and assure you that DHS and I are committed to all parts of the

Financial Accountability Act, and we believe that effective internal

control is, indeed, a key to accountability.

DHS leadership is committed to a culture of integrity, accountability, and effectiveness, and we will continue to work with Congress, OMB, GAO, and the IG to ensure inherited weaknesses do

not become ingrained into our operation.

Thank you, Mr. Chairman.

Mr. PLATTS. Thank you, Mr. Maner.

[The prepared statement of Mr. Maner follows:]

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Mr. PLATTS. Dr. Combs.

STATEMENT OF LINDA COMBS

Ms. COMBS. Thank you, Chairman Platts and members of the

committee. I thank you for the opportunity to appear before you

again today to discuss the financial management issues at the Department of Homeland Security.

The administration has made improving financial management,

as you know, one of its top priorities. The President, through his

management agenda, is holding executive departments and agencies accountable for achieving clean audits, building strong internal

controls, and creating an atmosphere here timely and accurate financial data is used by agency leaders on a day-to-day basis to inform key decisions and strategies within their departments.

It is through these financial disciplines that the Government can

ensure that the American public has good stewards at the helm for

the American taxpayers; also, that Government leaders are making

smart decisions, and that those dollars that the Federal agencies

have can carry out their mission successfully.

Nowhere are these objectives more important than at the Department of Homeland Security. We all know the critically important

mission that has just been discussed by my colleagues here that

this Department is charged with, and we all know the enormous

challenges that the Department has faced in bringing together numerous and complex organizations to help achieve their mission.

In my role in the Office of Management and Budget as Comptroller, I am charged with carrying out the President’s management

improvement initiative and financial management Governmentwide; therefore, I work closely with Homeland Security on these efforts. I am pleased to be able to sit here with my colleagues today,

who I believe are very strong leaders and have a very clear and

strong understanding of financial challenges that they face. They

are committed to doing what is necessary to meet those challenges,

and they have developed an aggressive schedule for implementing

critical improvements, and they have had significant and important

accomplishments that are serving as a foundation for further

progress.

In fiscal year 2003, the year of the DHS existence, they conducted an audit of significant parts of financial operation, and even

though they were not required to do that at that particular time.

But this process provided the Department with an early visibility

into internal control and other financial vulnerabilities and provided a very good foundation for moving forward.

In fiscal year 2004 DHS completed a more comprehensive review

of financial management activities, and did so just 2 days past the

45-day deadline that was accelerated, and the previous year I think

they had reported in 136 days, as opposed to 45. That is a significant accomplishment.

DHS has also been working aggressively to ensure that its corrective actions lead to fewer material weaknesses in its 2005 audit

report. They have moved quickly to comply with requirements for

an audit opinion on internal controls pursuant to public law 108–

330. The Department has taken many critical steps, some you have

heard about already and some you will hear about further today,

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including the establishment of the Internal Controls Committee.

And, having done that before in previous agencies myself, I can attest to how important that is throughout the Government in having

that in the individual departments.

Developing an implementation guide and strategy and adopting

the GAO internal control management and evaluation tool, aligning those efforts with the Government-wide implementation guidance for circular A–123, those are heroic efforts.

In closing, the administration remains committed and remains

dedicated to improving overall financial management across Government.

Given the Department of Homeland Security’s unique and vital

purpose of protecting our homeland, I can assure you that we are

committed to closely monitoring the Department’s progress; to ensure that it continues to take the necessary steps; to improve its

financial reporting, financial management, and internal control

processes; and offer any help that we can along the way in terms

of assuring their success.

I look forward to maintaining an ongoing dialog with this subcommittee on the specific efforts and progress that Homeland Security is making to meet its financial management and reporting

goals and requirements.

Thank you, Mr. Chairman, for the opportunity to be before your

committee today. I am pleased to answer any questions.

Mr. PLATTS. Thank you, Dr. Combs.

[The prepared statement of Ms. Combs follows:]

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Mr. PLATTS. Mr. Skinner.

STATEMENT OF RICHARD SKINNER

Mr. SKINNER. Thank you, Chairman Platts, for the opportunity

to testify today about the OIG’s work regarding financial management at the Department of Homeland Security.

I would like to summarize three issues from my prepared statement that I have submitted for the record, and that is the Department’s current financial reporting status, implementation of internal control requirements, and the role of the CFO.

First, concerning the state of the Department’s current financial

reporting, as you know, DHS received a disclaimer of opinion on its

2004 financial statements. However, this disclaimer obscured some

very good news, and that is, for several DHS components with accounting operations, we noted relatively few problems that contributed to the Department’s 10 material weaknesses. When one analyzes the reasons for the disclaimer in the material weakness, the

critical path for improving financial reporting becomes clear; that

is, fix the process at Immigration and Customs Enforcement [ICE],

and at the Coast Guard and at the Department’s CFO office.

I am pleased to report that the Department has taken significant

steps in addressing our recommendations regarding the structure

of the CFO’s office. The CFO’s office, as Andy Maner has already

pointed out, has hired a deputy and several accountants and contracted with an accounting firm to evaluate the consolidated financial reporting process. Also, the CFO has developed automated procedures that identify abnormalities in financial reporting. The bureaus research the abnormalities and the CFO monitors the bureaus’ progress in correcting them. We will be reviewing the utility

of these changes in our current audit cycle.

The Coast Guard has also made some structural improvements.

It has hired an experienced civilian financial manager to coordinate

its financial reporting in order to lend continuity to the rotational

environment of the military. The Coast Guard also has hired a contractor to evaluate its internal controls for certain financial processes as part of the Department’s overall effort to implement the

DHS Financial Accountability Act.

ICE presents the most difficult financial reporting challenge for

DHS. Its financial management problems have reverberated

throughout DHS, consuming large amounts of management time

and affecting the accounts of other significant DHS components.

We reported in 2004 that ICE fell seriously behind in its basic accounting functions. Many of these problems persist today. To help

address these issues, ICE has recently appointed a new acting CFO

and financial management director.

Second, concerning the implementation of the internal control requirements of the DHS Financial Accountability Act, this presents

a tremendous challenge to DHS, a challenge that the Department

is taking very seriously. The CFO is committing Department and

bureau resources to the project and has taken or is taking the necessary actions to meet this requirement. But this is not going to

be an easy task. The Department is starting in the hole, so to

speak; that is, as a new, not-yet fully integrated organization with

10 material weaknesses, a disclaimer on its 2004 financial stateVerDate 11-MAY-2000 11:14 Nov 18, 2005 Jkt 000000 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 D:\DOCS\24086.TXT HGOVREF1 PsN: HGOVREF1
30

ments, and major accounting problems with two of its critical components, ICE and Coast Guard. Nevertheless, with the right resources, a genuine commitment, and a sustained leadership, DHS

can be successful implementing this requirement.

Finally, concerning the need to strengthen the role of the CFO,

I had previously reported my concern about the CFO’s authority

within the Department in our 2004 management challenges report.

My concern was that under the Department’s management directive the CFO does not have direct authority over financial management personnel at the component level. Component heads retained

control over the financial management resources in the respective

organizations. This concept of operation tends to divide the responsibility for financial management from the authority to command

the resources needed for good financial management.

Notwithstanding my concerns in this regard, however, I am encouraged by the Secretary and Deputy Secretary’s commitment to

financial management. In my meetings with them, it became clear

to me that they have made financial management in the Department a priority, as evidenced by the CFO’s direct reporting responsibilities to the Secretary on all financial management issues.

The results of our ongoing audit of the Department’s financial reporting will go a long way in determining whether new authorities

vested in the CFO is sufficient for good Department-wide financial

management.

Mr. Chairman, that concludes my remarks. I will be happy to answer questions.

Mr. PLATTS. Thank you, Mr. Skinner.

[The prepared statement of Mr. Skinner follows:]

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Mr. PLATTS. I appreciate all four of your opening statements. I

am going to recess now to the call of the Chair and hopefully be

back in 20 or 25 minutes. I apologize for keeping you waiting.

[Recess.]

Mr. PLATTS. We will reconvene the hearing.

I am pleased to have been joined by our ranking member, Mr.

Towns from New York. He is going to submit his opening statement for the record without objection.

I know Mr. Duncan will be here shortly.

We are going to go into the questions. Again, I thank each of you

for your written statements and your testimony here today. I want

to say up front that, while we want to have a frank and substantive dialog with you today, that I certainly appreciate the dedicated work of each of you and your colleagues in your respective

offices, and appreciate the efforts you are making on behalf of all

of our fellow citizens.

I think we are all after the same thing, which is an accountable

Federal Government and, in specific in this case, a well-run and efficient Department of Homeland Security that can well fulfill its

critically important mission. As Mr. Maner said, given the attacks

in recent weeks in Great Britain, all the more important a reminder of the nature of that mission. It is why we, quite frankly,

have spent as much time as we have on the financial management

of the Department, because clearly the better we do on financial

management the more resources are available to that front-line

mission, and that we really are after achieving that ultimate goal.

I want to begin, Mr. Maner, with the internal control audit issue.

I appreciate directly in our conversations and in other forums you

have expressed concerns about the process for moving forward with

the internal control audit and the timing of it for the 2006 fiscal

year. One of the things I have read, or maybe I have taken from

your comments, is the concern that your audit is not going to be

maybe a good audit, in other words, a clean audit or a very positive

audit, because of not being able to have everything done in advance

that you would like to. Quite honestly, I would expect it to highlight some deficiencies and do not think that is a bad thing though.

The analogy would be to last week when Dr. Combs was here

with us on improper payments, and I said it may sound a little unusual but I am hoping that this year’s number is higher than last

year’s $45 billion because we know the money is out there and I

would rather we identify the improper payments because then we

can go after and try to prevent them in the future by uncovering

them. That is really what we see with the internal control audit

is to help identify problem areas.

That being said, where do you stand today as far as a comfort

level of us going forward and that we are not looking for a clean

audit but just to get to that better—and, in fact, your statement

kind of made it for me. You were talking about 2004 being your

baseline audit because you address the additional four statements

as opposed to the 2003 audit, and in your words, ‘‘The harder and

deeper you test a system, the truer, more complete an assessment

you get and the more weaknesses you are likely to find. My goal

is to get to bedrock.’’ That is exactly what we are after in the internal audit, and, again, where you are today.

38

Mr. MANER. Sure. Well, first of all, I think many in the Government, we are trying to all find our way through this. This audit,

probably one of this size has not been attempted before, so we are

working with OMB, working with our auditor. And so where am I

today? Again, GAO has spoken on this issue, which is: when is an

entity ready for an audit of this size and of this scope? That is really what I have been talking about. It does not do you all the good

that you want to do an audit if you are not ready for an audit.

What do I mean by that? So much of an internal controls audit,

really, so much of any audit, is the planning and documentation

phase. In other words, an auditor is going to come into a room on

internal controls just as they would a balance sheet and say, ‘‘OK,

show me your documentation.’’ If I do not and the Department and

every component that is viable does not have that documentation

done, the auditor could say, ‘‘I cannot. I do not have enough information. I have to disclaim this audit.’’ And so my statement and

my thinking is I just believe that we need to be ready for the audit,

and that is producing for an internal controls audit, as you know,

a massive amount of documentation.

So we are going down the road. We have put our planning guidance out, as you know, and we are going to do it. But I am mindful

of the statements GAO has made about when is someone ready for

an audit. I am mindful of the push back and the issues we have

discussed within our own Internal Controls Committee, but, to the

broader point, we are going to do it, we are going to do it as best

we can, and we are going to get better every year.

Mr. PLATTS. I agree that the audit readiness and preparation is

key here, and really one of the reasons of when we agreed to 1

year, doing 2006 instead of 2005, was to give that opportunity. But

I also look at it that if we had said 2007, somehow we would fill

all the time between now and 2007. If we had said 2008, in other

words, human nature is if we have a deadline we all the more work

to make that deadline. That is part of that push.

You reference in your testimony, in talking about the internal

control audit, one of the challenges apparently is in the staff, and,

in your words, very taxing on a thin financial management cadre.

It is something I believe the Inspector General has referenced, as

well, as far as the ability from the human capital resources to have

enough experts, enough individuals.

When I read both the IG’s statement and yours, I take that perhaps you do not have enough staff, by what you are saying. If that

is the case, have you made requests for additional staff in order to

comply with the law, which is to be ready for that 2006 audit?

Mr. MANER. Sure. Before I address staffing, let me just make one

follow-on point to your comments about your delay.

You are absolutely right. You will fill the time. I just want to

continue to assure this subcommittee that, because we have 10 material weaknesses on international controls already identified by

ourselves and our auditor, I just want to make sure all realize that

those are serious weaknesses that give us, that have us moving in

the right direction, so the ball is moving forward. I just wanted to

make that point.

In terms of staffing, of course, because this is relatively new in

the Government and new even to the private sector, it is not about

39

numbers of people. It is certainly about the quality of the people.

People have undergone something this rigorous. And so I believe

we do have the right number of people, but we have asked for and

the appropriation has been generous to date for additional dollars

so we can get some advice from the outside, and we have done that.

So at present I am pleased with our staffing in that our financial

management shop and in my office total our staffing has doubled

since I have been there. So numbers of people not as important,

but both ourselves and our components are going to need to add

this expertise, for sure, to be able to do this.

Mr. PLATTS. What did you mean then by the thin financial cadre?

I mean, because in your written statement it seems like you do not

have enough.

Mr. MANER. No. I believe that with the challenges DHS has in

front of it with regard to our financial statements, and that includes some of the things you mentioned in your opening statement

about ICE, challenges at the Coast Guard, all of our weaknesses.

We could all be busy morning, noon, and night with just that audit,

and on top of it the new audit just is additional requirement. So

we have asked for, the administration has provided, and to date

the Congress has given us additional people, as well. So I did not

mean to imply we are not growing, because we are growing to meet

that requirement.

Mr. PLATTS. A followup question on this and then I want to get

to Mr. Towns, and we also are pleased to have been joined by Mr.

Duncan from Tennessee.

On the audit, itself, I think in the 2006 budget request, the $5

million that I believe is specifically for the cost of the audit being

done, in our dialogs, the committee’s dialog with some entities in

the field that may be a low number. Are you confident that is going

to cover the cost of the internal control audit?

Mr. MANER. Well, there’s actually, we intend to use the resources

that we have and have asked for for really three pockets, which is,

one, people on our own staff. Two would be preparation, getting

ready for the audit. And then three would be the cost of the audit.

Some of those will be done with appropriated dollars and some we

will, when it is a shared cost, we will use our working capital fund

for the various bureaus. From now as we go forward, bureaus will

be expected to ask for and we will put dollars for that in their

budget from this point forward. So we have ingrained that requirement into our budget cycle. It is a well-known thing now.

Mr. PLATTS. So the $5 million is additional money basically to

the CFO for the audit, but you are also going to be looking for all

of the entities within the Department to kick in dollars from their

own budgets?

Mr. MANER. They will have to begin to do that, yes, to prepare

for the audit and then also pay for the audit.

Mr. PLATTS. And carry a share of the cost of the audit?

Mr. MANER. Right.

Mr. PLATTS. And your three items, it sounds like you again said

you have asked for additional staff?

Mr. MANER. I would love to get back to the committee even while

we are here today, because I believe the money that I asked for in

the 2006 budget was for getting ready and for five additional FTE

40

to help us on the internal controls, but I will make sure I clarify

if that is not correct.

Mr. PLATTS. OK. Thank you, Mr. Maner.

Mr. Towns.

Mr. TOWNS. Thank you very much, Mr. Chairman.

Mr. Maner, I am not sure I understand why you think that an

audit at this time would be counterproductive. I am not sure I understand that, because you are talking about readiness and you are

talking about planning and documentation. I mean, with a new

agency, I mean, it seems to me that you should be ready, I mean,

because I could see if you were the Department of Defense, but a

new agency, why would not you be ready for and also be receptive

to it at this point in time? It is not clear to me.

Mr. MANER. Well, let me first say that I absolutely embrace the

active law and I intend to, and we have talked internally and externally that we intend to embrace the law in its totality. In previous conversations with the committee last year, I raised some

issues about it, but the law is the law and we intend to comply

with it.

As for being ready for it, again, as this committee knows and others know, there is internal controls work in your financial statement audit, so we are learning. We have 10 material weaknesses

already, so we have, again, plenty to do.

In terms of it being duplicative, again, it is the law and we are

going to get ready for it and we are going to do it, but I will say

that people should not underestimate the amount of rigor and

amount of documentation and planning that needs to be done to do

this right. So will we be there in a year? We will not be there in

a year. But we will do it, and when we do our first audit next year

we will go as far as we can go. We have embraced it with the full

vigor of the leadership of the Department.

Mr. TOWNS. It is not a staffing problem?

Mr. MANER. The internal controls audit certainly relates to staffing, but you need to do a tremendous amount of documentation. I

cannot overemphasize the amount of documentation. Now, I must

tell you I must confess I have not done one of these before, so I

am learning from people in the private sector, I am learning from

people within the Government who have done it.

In fact, one of our bureaus, Customs and Border Protection, has

done one of these a few years ago before they came to Homeland.

What I have learned, it is about documentation, documenting all

processes, everything from start to finish, and it is just time consuming.

Mr. TOWNS. OK. Let me ask you a question about a letter here.

I have a copy of a letter here dated July 20th from Congressman

Benny Thomas to Secretary Chertoff. It questions DHS on its decision to award a single vendor a blanket purchase agreement for the

new MAX HR system. Has DHS responded to Congressman Thomas’ inquiry?

Secretary HALE. I know that if it has not actually been sent that

we are in the throes of doing it and that we have been in discussion with the committee staff. I am just not sure whether the signature is on the letter, but we have been in discussion with the

committee staff on that, I believe.

41

Mr. TOWNS. All right. So it will be happening very soon?

Secretary HALE. Yes.

Mr. TOWNS. Thank you.

Mr. Maner, as you well know, our committee has been active in

pursuing new policies and activities for agencies to reduce the extensive amounts of improper payments identified by GAO. What efforts are underway at DHS to further identify and reduce such payments in the future? What are you doing to correct that?

Mr. MANER. Well, certainly improper payments is part of our

overall audit process and we had, I believe, a few of our bureaus

undergo specific audits, themselves, to determine how extensive the

issues are at Homeland. Improper payments exist certainly everywhere, and it is our responsibility to limit that. We had one particular instance at FEMA, one of their accounts that scored in an

area that we would be uncomfortable with above the OMB level,

and we have addressed that issue.

But certainly the work of this committee, the work of Dr. Combs

and others on this, we are going to be very mindful of this going

forward. But it continues to be something we track on our monthly

dashboard. In other words, our components submit to us and we

put out to everyone for everyone to see how everyone is doing in

improper payments, so it continues to be a key metric for us as we

evaluate our components and ourselves.

Mr. TOWNS. Mr. Chairman, is that our red light or yours?

Mr. PLATTS. I think it is yours.

Mr. TOWNS. I yield.

Mr. PLATTS. We will be back to you. Thank you, Mr. Towns.

Mr. Duncan.

Mr. DUNCAN. Well thank you, Mr. Chairman. I do not have a lot

of questions. I will say this: it gets kind of discouraging, though,

when we hear over and over and over again about all these billions

that are being lost or misspent or whatever you want to say about

it. I mean, a couple of months ago we heard that the Defense Department had mis-spent $35 billion in Iraq and had lost $9 billion

in additional money, just lost $44 billion.

Of course, nobody is supposed to criticize the Defense Department now, but still that seems to me to be a pretty horrible thing

to mis-spend or lose $44 billion. Then last week we heard about

several other departments and agencies that had mis-spent—other

than the Defense Department—that has mis-spent I think it was

$45.1 billion in our hearing. Was it last week that we had that

hearing?

And nothing ever happens to anybody. Nobody gets fired. Nobody

is really held accountable. It does not come out of their pocket, so

far too many people do not seem to care, and then we talk about

these billions so often that it just goes right over people’s heads.

I mentioned one other time that Charlie Cook, the very respected

political analyst, said in a speech I heard about a year ago, he said

nobody can humanly comprehend a figure over $1 billion, and I

guess that is really true. But it just gets really discouraging at

times to keep hearing this from every department and agency in

the Federal Government.

I do not know that there’s any way really to stop this unless we

just really drastically down-size the size and cost of the Federal

42

Government. I do not think we are going to do that. I tore out this

article a few days ago about the TSA. It says, ‘‘TSA lost control of

over $300 million spent by this contractor to hire airport screeners

after 9/11.’’ It just seems like we read stuff like that every day. I

just do not know.

I will say this: I sure appreciate you continuing to hold these

hearings and call attention to these things, because if we are going

to have any hope to do anything about these things this is the best

way to do it. But I tell you, after you hear this year after year after

year you just become convinced that the Federal Government cannot do anything in an economic or efficient or especially in a frugal

way.

I yield back.

Mr. PLATTS. Thank you, Mr. Duncan.

I wanted to come back to the internal audit control issue. We

have had some informal discussions on the issue and the support

within the Department for doing this. Mr. Maner, you referenced

that you are fully behind this and understand the importance of it,

embracing it.

I do want to ask, though, back to the ongoing appropriations

process. On January 30th this year then Deputy Secretary Loy had

sent a memo to all the undersecretaries and others. From the copy

I received it does not appear that it came to you as CFO but to others in the Department to ‘‘impress upon the importance of the internal control requirements of the DHS Financial Accountability

Act.’’ Seven days later, the President’s budget comes up with the

request for a year delay on the terms of that legislation that was

just referenced.

I guess, first, are you aware of what the genesis of that memo

was, and did you receive it? And, Secretary Hale, did you also receive a copy of that memo?

Mr. MANER. Yes. Sir, I would have helped write that memo for

the Deputy Secretary. Again, the previous discussions, I guess it is

a bit of if I had three wishes back then, maybe one of them was

to have 1 more year to get ready. But I fully recognize that the

committee passed and the full House and Senate passed and the

President signed, and we started to get ready for it.

I think what you referenced in the budget document was an oversight, part of a previous discussion, but I hope that the memo and

the series of memos since from our leadership, including Secretary

Chertoff, have made it to you and that you see that we are fully

behind it, and the work that we did. We always appreciate a dialog

and the way you engaged us and OMB in the drafting of the legislation, we appreciated it. We appreciated the extra year. We may

have wished for two, but now we are fully behind it.

Mr. PLATTS. Secretary Hale, had you received a copy of that

memo, to your memory?

Secretary HALE. As Andy, the CFO office, said, it worked with

the Deputy Secretary’s office, and yes, I saw it as it was in preparation and then again as it was distributed.

Mr. PLATTS. I guess I have gotten conflicting understandings of

how that request even got in the budget document, whether it was

OMB’s initiative or the Department’s. I would be interested in both

43

of you sharing your understanding of how it came to be in the document and who drafted it and signed off on it being in there.

Mr. MANER. Yes. The accountability lies with me, certainly,

which general provisions which go into the budget, which there are

sometimes hundreds, lots of fine print. They start to get prepared

many months before the submission of the budget, both to OMB

and then ultimately to the Congress the first Monday of February.

So there are lots of general provisions and it got in there.

Mr. PLATTS. So it is your initiative to have it included?

Mr. MANER. It was my initiative when we initially did a call in

the summer for general provisions.

Mr. PLATTS. And this was after the law was signed by the President?

Mr. MANER. Probably before when it was first drafted, but then

certainly after once it got in, so accountability lies with me. It

should not have been in there. It is our mistake. But hopefully the

dates of other things show you that we have not just recently gotten going on the audit. We have been doing it for some time.

Mr. PLATTS. In the Senate appropriations bill for DHS there is

language that addresses this request as if it is still a valid, open

request from the Department that you would like a year delay.

Given your acknowledgement that it was contrary to the President’s wishes, since he signed the law, and you have said several

times, including earlier this year when we discussed it, that it

should not have been in there and you regret it was in there, did

you make any effort to the appropriators to the House or Senate

and say, ‘‘Page 574, I think it was, or so, that is null and void, that

request. We stand by the President’s signing the act into law.’’

Mr. MANER. Sir, I had not known that it was in the Senate bill,

but we have certainly, I have certainly talked with folks and people

know that we are embracing the bill. So it shouldn’t be in there.

Mr. PLATTS. The Senate and House appropriators know that you

do not want a year delay?

Mr. MANER. I suspect they do, but I do not know for sure.

Mr. PLATTS. Would you feel comfortable making sure they are

aware that you do not want a year delay?

Mr. MANER. I do.

Mr. PLATTS. If you would do so and copy the committee with

that——

Mr. MANER. We will do it.

Mr. PLATTS. That way we are all on the same page, not just the

authorizers but the appropriators, they know that you stand by the

2006 and we are moving forward?

Mr. MANER. Happy to do it.

Mr. PLATTS. OK. Thank you.

Dr. Combs, in a letter from Clay Johnson earlier this year, April

6th, to—it was in response to a letter to Secretary Chertoff and Director Bolton from myself, Mr. Towns, Chairman Davis, Chairman

Cox, Mr. Waxman, Mr. Thompson, that the importance of meeting

the audit requirements of the DHS Financial Accountability Act. In

response to our letter, Mr. Johnson wrote back, and in his letter

he stated that ‘‘OMB will continue to support the need for DHS to

fully prepare itself for meeting internal implementation deadlines

and complying with its internal control requirements.’’ It raised a

44

little concern with me that, while there’s an acknowledgement of

the act’s requirements, that the focus is going to be on meeting internal deadlines in the Department or OMB, as opposed to, again,

the letter of the law. Are you aware of any deadlines that are being

used for guidance in DHS in complying with the internal control

audit that are different than the law, itself?

Ms. COMBS. No, sir, I am not aware of anything except full administration support of the law, itself, and of doing everything we

can to fully support our colleagues here in the administration and

fully adhering to that.

Mr. PLATTS. Thank you.

Secretary Hale, Mr. Maner, we did not receive a letter, a response from the Department to that April 6th letter until just last

week. It was dated May 9th, but turned up in our hands July 20th,

and my understanding is the other recipients of the letter received

it about the same time, last week.

I guess, one, I was wondering why the delay. What happened?

It seems like the letter perhaps was written in May but never

shared with us. Are you aware of the reasons for the delay in it

being actually communicated to us?

Mr. MANER. No. I have the letters here. That is unacceptable. We

received your letter, it looks like, on April 6th and our response,

as you say, is dated May 9th, so I see no reason why that should

not have been up here sooner.

Mr. PLATTS. Yes. If it was just mine with mail here I would

maybe understand. Sometimes that happens with mail.

Mr. MANER. We do not tend to mail. We bring things up. That

should not have——

Mr. PLATTS. Mr. Skinner, were you aware of the request for the

delay in the budget document?

Mr. SKINNER. No, not until we saw it in the budget request.

Mr. PLATTS. How did you come to be aware of it? Actually, your

staff had seen it in the budget request?

Mr. SKINNER. Yes.

Mr. PLATTS. Once the budget was submitted to Congress or prior

to that?

Mr. SKINNER. No. Once it was submitted to Congress.

Mr. PLATTS. Did you raise any concerns or issues about that

since it was the letter of the law was 2006 and 2 months after

the——

Mr. SKINNER. I think our staff did, in fact, have conversations

with people in the office of the CFO, and my recollection is that

there was concern that the Department was not ready, because

they had rolled up their sleeves and were going full speed ahead

with regards to trying to address or develop corrective action plans

for the material weaknesses, as well as attempting to integrate

their financial management systems and producing financial statements that we could opine on, an opinion that would be qualified

as opposed to a disclaimer. I think all the attention was over on

the preparation of the financial statements. People believed this

was a diversion and a distraction and——

Mr. PLATTS. I want to stop you there. So it was conveyed to you

by others in the Department that doing—complying with the internal control audit would be a distraction from their responsibilities?

45

Mr. SKINNER. During this year, yes. Everyone believed, since we

did the 2004 statements that was our base year, 2005 was a very

critical year for the Department to break away from the disclaimer

into a qualified opinion.

Mr. PLATTS. I appreciate your frankness and would suggest to

the Department that there clearly is a difference of opinion, then,

between this committee and the Department that doing an internal

control audit is a distraction from the work, the financial management work of the Department.

I will not go into great detail but I am going to get into the TSA

audit that was referenced by Mr. Duncan. There’s other TSA audits, the ICE debacle at the end of year 2002, the $300 million

short. Those are all internal control problems, and the sooner we

get after them the more responsible we are for the taxpayer funds

and the sooner we can better fulfill the mission of the Department.

Mr. Skinner, your opinion is doing an internal control audit

would be beneficial to the Department and its fiduciary duties to

the taxpayers?

Mr. SKINNER. Most certainly. If we can attest to the internal controls with regard to financial reporting, I think that adds another

level of assurances that the financial statements that you see and

the public sees are accurate and reliable. I think an audit of those

assertions will also aid management to identify any gaps—any

problems they have with their processes that can be fixed and

hopefully in the future eliminate all internal control or material

management weaknesses.

Mr. PLATTS. I share that opinion, and all the more why we will

continue to push the issue here.

I want maybe just one final question in this area before yielding

back to the ranking member. Ms. Hale, on July 15th of this year,

2 days after we had submitted our request for the Department to

come up and testify regarding compliance with the DHS Financial

Accountability Act, as well as the 2004 audit, Secretary Chertoff

sent a memo to agency personnel regarding compliance with the Financial Accountability Act, and on the copy that was provided to

us a handwritten note from the Secretary saying ‘‘This is very important.’’

My understanding is that is the first of his referencing the act

in specific in documents, and the fact that it happened 2 years

after our request, I guess I am glad we made the request because

it maybe help put it on his radar. I was interested if you could

share with us your knowledge about that memo and kind of what

generated it at that time versus earlier in the process, given he had

been in office for several months and this law has been on the

books at this point for 10 months.

Secretary HALE. I think Andy is just reminding me that during

the 2SR process I think the 2SR team reviewed—this is one of the

areas that he had set up and during that process sort of reviewing

the financial management in the Department. So while it may have

been coincidence in timing, I believe—and Andy would have much

more detail—that it had been in preparation before, again, because

his concern about financial management and why he set that up

as one of the 2SR reviews, why we had Deputy CFO Eugene Schied

as one of the key leaders in that second stage review.

46

Mr. MANER. One of the key findings, sir, of that team that we

briefed was that, as fast as possible, much like a lot of the other

2SR areas, which encompassed most everything the Department

does, one of the key findings was to make sure that after Secretary

Chertoff had a couple months to be in the office, that he communicate his goal and his commitment, too, so that was one of the

things we took on and why we put that out.

Mr. PLATTS. And I appreciated, as one who spends a lot of time

on financial accountability, that the second stage review included

referencing financial accountability. I guess I was somewhat surprised, then, in the Secretary’s letter to Chairman Davis of this

committee on July 13th, 2 days earlier, referencing the second

stage review and a lot of the ongoing work and the reallocation of

functions and things, that nowhere in the, I think it is about a

seven or eight-page letter, is financial accountability mentioned

once. Did I miss something that was separate from this letter?

Secretary HALE. Not having a copy of that letter in front of me,

I believe that is probably our 872 letter that talks about the movement of organizations, and because your statute had passed, he

was a direct report, we do not need to do a reorganization notice,

so that was literally the notification to the Congress of those organizational elements that were moving.

Mr. PLATTS. And so, because my legislation had already passed,

it is not something new.

Secretary HALE. Right.

Mr. PLATTS. And that is not in this letter?

Secretary HALE. That is correct, sir.

Mr. PLATTS. That leads into the next issue with the reorganization and the identification of the CFO within the management

structure. But before I get into that I am way over my time, and

that is now my red light, Mr. Towns. I will yield to the ranking

member, Mr. Towns.

Mr. TOWNS. Thank you very much, Mr. Chairman.

Dr. Combs, good to see you again.

Ms. COMBS. Thank you, Mr. Towns.

Mr. TOWNS. How engaged were you and other OMB staffers in

developing Secretary Chertoff’s proposal, reorganization proposal?

Ms. COMBS. I am sorry? Could you repeat the question?

Mr. TOWNS. Yes. I was just saying how engaged were you and

others at OMB in the review and development of Secretary

Chertoff’s reorganization proposal? Were financial management

concerns a significant component of this?

Ms. COMBS. I can assure you Secretary Chertoff and his staff developed their proposal and I was not, of course, confirmed until 3

weeks ago, so I personally have not been involved in that.

Mr. TOWNS. OK. Does the mission of DHS, along with its decentralized structure, pose a significant barrier to effective financial

management practices?

Ms. COMBS. I am not quite sure how decentralized the thought

is. I think what, frankly, the centralization housed within the CFO

is probably more pervasive than one might guess by looking at the

organizational chart or perhaps even looking at some of the material that has been subsequently presented to you. I think the appropriate question here might be for Mr. Maner to explain some of

47

the things that he and I have talked about, about how very, very

strong his CFO shop actually is in reaching into the component

areas, and I think you would be good to actually hear some of the

things that he has actually done over the last year to strengthen

the CFO shop within DHS.

Mr. TOWNS. Let’s yield to him.

Ms. COMBS. Let’s.

Mr. MANER. Thank you, Doctor. This has been something that

has been very important to me in how we execute the relationship

between our office and our bureaus. In fact, at last year’s hearing

when I was here we had a nice dialog about it. What we have focused on very much since I have been there is this centralization

of processes and systems between our bureaus.

In other words, we do not want to have 10 different ways to close

our books. We do not want to have 10 different ways to process a

travel voucher, 10 different ways to do PCS moves. We have focused on integrating so that we have standard operating procedures [SOPs], in the Department where when you come in as a new

employee and you are at the Secret Service or you are at Customs

you open a book and say, ‘‘How do I do X?’’ ‘‘In the Department we

do it this way.’’

So we have put a fair amount of capital and a fair amount of

human work into having people help us develop those SOPs, so

that is on the process side and I believe—this has been my belief—

that is one of the most important things we can do out of the box

is to standardize the Department.

The second is to continue working to streamline our financial

management systems. When we first started the Department we

had 19 financial providers in the Department, people getting accounting service from 19 providers. We have taken that to 10, and

then in the last year we have reduced that to 8. I want to continue

to work and streamline and reduce those, and certainly when an

agency is in need of a new system we want to provide a Department-wide financial system. We are also working to provide a dashboard for management so we know what everyone’s financial performance is.

So the themes here out of the gate are processes and systems.

More about people, which is, I think, an important aspect, how I

interact with the other CFOs at the components, it has been an important part of my term as CFO. We have lots of interaction. Certainly I have a monthly CFO council. We have weekly meetings, as

well.

But I think how do you get that closeness to those people and

how do you get that integration? To me it does revolve around performance management and how these people are rated and compensated, how they are hired, and if need be, fired. And I have full

authority given to me in management directives signed by Secretary Ridge to do all of those things.

So even in the last few months we have literally responded to

questions for help from our agencies who are looking for CFOs,

found them qualified people, and put them in.

So as it relates to people, process, and systems, I do not think

it would be correct to say we are not centralized. I think we are

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centralized in a meaningful way without severing the important

dual relationship between a bureau CFO and their agency head.

Mr. TOWNS. All right. Thank you very much.

Mr. Chairman, my time has expired.

Mr. PLATTS. Thank you, Mr. Towns.

Mr. Gutknecht from Minnesota.

Mr. GUTKNECHT. Thank you, Mr. Chairman.

I do not really so much have a question but a comment and a

compliment. To sort of pursue what has been said already, particularly by my colleague from Tennessee, we spend an awful lot of

money on these kinds of programs.

In fact, one of my disappointments was that when we created the

Department of Homeland Security it was supposed to be the consolidation of an awful lot of programs that were in diverse, various

different departments, that by consolidating those ultimately the

cost would be less, certainly not any more than we were spending

before. Of course, that was then, this is now, and we have seen the

cost of this Department be substantially more than we were promised at the beginning.

In my opinion, that is bad enough, but when you add in that

there is an awful lot of money that cannot be accounted for, that

makes it even more difficult to defend.

Finally, and I think this is for the benefit of everybody here, in

a little over a month we will celebrate the 4-year anniversary of

that terrible attack on the United States. I think we need to be reminded once in a while when we say, well, maybe next year we can

do something about this, or maybe we are working on that.

When the United States of America wants to do something we

have proven that we can do it and we can do it rapidly. I remind

you that we won World War II in less than 31⁄2 years, and if you

think about what all went on to make certain that happened, it

just boggles my mind that we cannot come up with sound accounting systems in almost 31⁄2 years.

So, Mr. Chairman, I appreciate this hearing. I hope you will continue to hold these hearings, because I think our constituents and

the people who pay the bills expect no less.

I yield back.

Mr. PLATTS. Thank you, Mr. Gutknecht. For good or bad for everyone involved, we do plan to continue our oversight responsibilities and the importance of getting this right the sooner the better

for all involved.

I want to come back to where we left off with my last round of

questions on the reorganization issue. I want to start with the organizational chart. In any department that puts these out, in my

office we have a similar organizational chart. One of the purposes

for doing it is to convey to all parties in the entity in question and

outside of the entity the line of authority and where everyone falls

and so there is no misunderstanding.

That being said, as was referenced in the last question’s answer,

the letter did not reference the CFO position change in the July

13th letter to Chairman Davis because it was done as of last October, I was a little surprised when the organizational chart came out

as part of the second stage review and had no CFO. To me that

sends a terribly wrong message, that the message that has been

49

conveyed to me by the Secretary, by the Deputy Secretary here

today, by officials is that this is a priority, this is a position we see

as was intended by Congress in the passage of the CFO Act of 1990

that the CFO is a strategic manager, one of the key people in each

and every major department or agency. Yet we have an organizational chart that did not even identify him anywhere. This seemed

problematic and seemed inappropriate, not to mention non-compliant with the law.

I guess I would start with Secretary Hale. How did that come to

be? Were you involved in the development of the original organizational chart, and specifically the lack of the CFO being identified

in that chart?

Secretary HALE. Sir, I was involved and let me again emphasize

to you the importance of the CFO and that direct reporting relationship.

Hindsight and your, I think, quick pointing that out to us is why

we made a very important and I think clarifying part of this. What

we were trying to do, and every once in a while hindsight is a good

part for us, we were, again, like that 872 level trying to talk about

the moving parts.

But clearly understand that it is important, as you have said, to

both internal and external. I think internal inside DHS they understand the role, the leadership that the CFO plays in general, and

this one in specific. Andy Maner is involved in absolutely every single major financial issue in this department and sits at the right

hand of the Secretary and the Deputy Secretary, so I think it is important that we did clarify it, sir, and want to have absolutely no

misunderstanding that we take that direct responsibility, direct reporting because of the importance of financial management to the

Secretary.

Mr. PLATTS. Your statement was that the chart was a focus on

the moving parts, and the CFO was not moving, but it was not in

the organizational chart prior, right, delineating direct report?

Secretary HALE. Yes. Interesting, on the day of the announcement—and I can only tell you that of all the things we do in the

Department, charts may not be our strength. But one of the moving parts was the Office of Security from the Deputy Secretary reporting back to me, and so I had the opportunity to go see the Office of Security Personnel, who were quite concerned about an organization chart that had an old one on the Undersecretary for Management. I can tell you from the development of our charts and

with the day-in and day-out operation, we do understand and we

do support the direct report to the Secretary.

Mr. PLATTS. The reason I am focusing on this is not because I

think a chart makes a difference, but it does send a message because you do not get to speak to every person in the Department

or every partner who is acting with the Department outside, and

so people do give a lot of weight to these and say, ‘‘Does he really

have the authority that they say he does?’’ So that is part of the

importance of reflecting, notwithstanding the fact that also the law

says——

Secretary HALE. Absolutely.

Mr. PLATTS [continuing]. He’s got direct reporting authority.

Even in your new chart I will make one more suggestion.

50

Secretary HALE. We always listen.

Mr. PLATTS. I take the work of previous Congresses and Presidents as they are intended to be, as the letter of the law of the

land, the law of the land, the intent of the CFO Act when it was

passed, of how important a position this is. Even in the revised

chart I appreciate the dual reporting showing that Mr. Maner has

that direct report to the Secretary and Deputy Secretary, as well

as to you as Undersecretary.

The chart to your right, my left, is how I would suggest it to say

to the world at large, the public at large, that yes, our CFO position is equal to our assistant secretary for public affairs, our assistant secretary for congressional and inter-governmental affairs. In

fact, our CFO is by law a direct report to the Secretary. Those

other positions I believe are not. And to say, this is not a sub-level.

This is equal if not more important because it is the people’s

money.

I would make that suggestion and would be interested in the realignment that is identified in the reorganization chart, and that

being made clear to all Department employees as it goes to, Mr.

Maner, one of your statements about your authority. I think I understood you right that, per a directive of then Secretary Ridge, you

do have the authority to fire entity CFOs within the Department?

Mr. MANER. Yes. I enjoy some authorities already in the CFO

Act, but certainly management directives are what guide a Department, and in consultation with agency heads we can affect variable

compensation, performance ratings, that sort of things, so yes.

Mr. PLATTS. Including the right to fire?

Mr. MANER. Yes. We have that, too.

Mr. PLATTS. Of all CFOs in all the 22 agencies?

Mr. MANER. We really do not have 22 agencies, per se, but in our

major operating entities in which there is a key financial

person——

Mr. PLATTS. Right.

Mr. MANER [continuing]. The answer would be yes.

Mr. PLATTS. And are you also consulted in the hiring of those positions?

Mr. MANER. Yes, absolutely. And in most cases I might lead that

effort or help the agency identify candidates.

Mr. PLATTS. I am very pleased to hear that. I think that is key.

The Inspector General has referenced that in his written testimony

and I think here today, as well. Long-term, that is, to me, critical.

We have been working with NASA, and they have seen some improvements from a disjointed structure where the CFO, in essence,

took what arrived on her desk but at least initially did not have

the ability to go out into the various NASA centers and say to the

CFOs, now you need to answer to me, as well, because I have to

put my name on what you are giving me. They have sought to improve that and it sounds like you are making good headway in

doing the same at the Department of Homeland Security.

The issue of a permanent CFO—and, Secretary Hale, you have

raised or spoke about an ongoing effort. As we have expressed in

conversations, as well as in writing between you and others in the

Department and myself and the committee, the requirement said

6 months to have a Senate-confirmed CFO in place. Ten months

51

have passed since the requirement was enacted. We are 4 months

overdue. I appreciate in your comments here today and my conversation with Secretary Jackson last week that there is a serious

effort to move forward and comply with the law to have a Senateconfirmed CFO in place.

First I would be interested in whether you have begun interviews?

Secretary HALE. Yes, sir.

Mr. PLATTS. When was the first interview conducted, roughly?

Secretary HALE. Last November.

Mr. PLATTS. I take it, the fact that there was not a submission

between November and now, as we speak, that initial candidate or

candidates was, for whatever reason, not acceptable?

Secretary HALE. Let me talk a little bit about it if I may, sir?

Mr. PLATTS. Yes, please.

Secretary HALE. As you and I have discussed, there is, in my

humble estimation, no more important position to fill right now in

Department of Homeland Security. The Secretary may look at some

of his other boxes, but it is critical for us. One of the things that

is terribly important is to get the right person in the right job, and

we want to be sure that they have the knowledge, the drive. This

is a leadership position. It is a leadership, as you have well indicated here, and, so, we want to be sure.

I hesitate to say this, but I know that it has been a challenge

in the rest of the Government to get appropriate CFOs, qualified

and nominated. We take this terribly serious. We also want to be

sure that, probably to use the wrong expression, I do not want to

just fill the box. I want to be sure that we have the right person

in the job. This Department, this mission, and, as you all in this

hearing today demonstrate, we have large challenges in front of us.

We have a very good CFO that is at the helm right now, and we

will continue to drive, as we have said, to fill that position in the

very near future with a recommendation and keep you informed.

Mr. PLATTS. I have reason to believe that we will see a name

submitted some time in August to the President for consideration

of submission to the Senate? Is that accurate?

Secretary HALE. It is our absolute goal to do that.

Mr. PLATTS. Well, my hope is that will occur. I agree you want

the right person, but we also need to comply with the law.

Secretary HALE. Sure.

Mr. PLATTS. How many individuals have been interviewed since

the law was passed to this date?

Secretary HALE. There have been a series of interviews done by

me and by others, but I have probably talked to seven or eight in

the last 2 months and sort of have done extensive outreach to be

sure that we have a wide range of candidates as we have looked

across the Government.

Mr. PLATTS. Prior to the last 2 months, and specifically in the 6-

months that would have allowed compliance with the law, how

many people were interviewed and in what depth were those interviews? How senior were they? Were the Secretary, the Deputy Secretary at those interviews?

Secretary HALE. Actually, the process inside the Department for

all of the chiefs have been one that I would do a significant

52

amount, so as we have sort of filled, whether it was the CIO or a

couple of the other ones that may be vacant, that I would try and

reach out again because of my expertise—I have served as a CFO

in several different departments—to try and sort of do that.

The Deputy Secretary, the Secretary have all been sort of engaged in looking at the types of candidates and have asked me to

do the early screenings, and so it is, again, with sort of knowledge

of who the candidates are, the types of people we are looking at.

Mr. PLATTS. So how many people in that first 6 months were

interviewed in depth?

Secretary HALE. Sir, I would hate to give you a number, but it

is somewhere between 7 and 10.

Mr. PLATTS. Not in the last 2 months, but in the 6-months——

Secretary HALE. In that period about sort of finding candidates,

reaching out, in-depth interviews sitting in my office, 5, 7, 10. I am

not sure. I can get you that number.

Mr. PLATTS. If you could, I would be interested in actually who

they were that were interviewed and the timeframe.

Secretary HALE. I would actually be happy to share that with

you, sir. I think some of these, as you reach out to people as they

are obviously either interested or not interested, there are some

privacy issues, but I would be very happy to talk to you about that.

Mr. PLATTS. And not just those where there was just an informal

conversation, I am looking for someone who actually came in and

interviewed to be considered. I appreciate the privacy concerns

there.

The reason for the question is again, Congress passed the law,

the President said it is a good idea, and it needed to be a priority.

I think we have someone who is very dedicated in the position to

now, has been working diligently, and I am sure if his wife and

children were here they would say too diligently, I imagine, in the

hours you are putting in, and I respect that. But I do not think it

took 10 months for us to find Andy.

Secretary HALE. It took me a little time to talk him into it. And,

again, we did the same kind of exhaustive search. Our first CFO

was fabulous. It was Bruce Carnes who was here at the Department and then went back to the Department of Energy. And I am

not sure how long between Andy sort of being able to identify, because you start with sort of a set of let’s go get the best financial

person, let’s go find somebody that has Homeland Security knowledge. Let’s go be sure that we have somebody that has the leadership skills.

So I am not sure how long it was, but it was probably 4 or 5

months between knowing that Bruce was leaving and before we actually had Andy locked, loaded, and in the chair. And, sir, again,

that was without the Senate confirmation. The period sometimes

for Senate confirmation is, as you well know, sometimes longer.

Mr. PLATTS. But the concern is that we appreciate the challenges, but we continue to fill positions, CFO or deputy CFO positions, throughout the Department, and when we have an instance

where it is a statutory requirement, it seems to be taking longer

than when it is not a statutory requirement. I think that we need

to be compliant as quickly as possible.

53

I am sure that in your various positions you have given deadlines

to subordinates to meet, and if they fail to meet them there were

consequences, and when my citizens back home fail to comply with

the law there are consequences, and we have clear failure to comply with the law. Whether we like it or not, that is what the law

is. It seems like there are not any consequences here at the Federal

Government level. And so I hope we will see compliance as quickly

as possible.

I have some additional questions. Mr. Towns, did you have others?

Mr. TOWNS. Yes, I do. Thank you, sir.

Mr. Skinner, some airports have turned again to private contractors instead of TSA for screening duties. What can you report to

us about the performance of these contractors, and what controls

are in place to monitor their performance? Will the new structure

of DHS management functions aid the oversight of TSA contractors?

Mr. SKINNER. I believe you are referring to the pilot program.

TSA has piloted five airports across the country——

Mr. TOWNS. Right.

Mr. SKINNER [continuing]. In using private contractors to provide

screening services.

Mr. TOWNS. Right.

Mr. SKINNER. At this point in time we have not done any assessments of their utility, that is, how well or how effective and efficient they are, in fact, operating. That is something that is on our

radar screen, however, for the very near future.

Mr. TOWNS. What bothers me, I am sort of wondering, until we

sort of tie some of these things down and sort of know where we

are going or what we are doing, should we do anything else until

we sort of get some of this under control? I am thinking in terms

of the statements made by both of my colleagues on the other aisle

in reference to the fact that we just have too many things that are

just loops. To experiment with something at this point in time, I

mean, really, is it a good thing to do, I mean, just from your own

background and experience?

Mr. SKINNER. I think that the pilot project is part of the legislation that was created that set up the Federalization of the screening process at the airports. The reason for that is, after a 2, 3, 4-

year assessment period, we can make a determination whether

some airports can opt out of the Federalization program and go

back to using private screeners so long as there is sufficient oversight by the Federal Government, or, in this case, the Department

of Homeland Security.

In my experiences with regard to contracting these type of activities out, I do not see that would create a problem so long as there

is a strong procurement oversight function in the Department, one

that monitors and holds contractors accountable. Without that

oversight and monitoring role, that is, holding people accountable,

yes, you can get yourself in trouble.

As far as I know from our general contact with these airports—

we have visited them as part of our penetration tests, as you may

know—we have found no anomalies or anything to suggest that

54

they are out of control. They are not performing any better or any

worse than our Federalized airports.

Mr. TOWNS. On that note then, Ms. Hale, has Congress provided

adequate resources for DHS to comply with its administrative responsibilities and internal control functions? Are financial resources preventing DHS from improving upon its internal control

functions? Are there personnel barriers? I mean, we want to help.

Just trying to get a handle on everything.

Secretary HALE. Thank you, sir, for both yours and the chairman’s support in this area. I think, as Andy Maner indicated, this

is partially a learning curve for us. We have the resources in the

budget. I anticipate that we will get those, although there were

some rather large reductions taken, but I guess not in the CFO

area, so I think we are probably OK as we go into conference here.

I think we will be fine. It is, again, both with the leadership, the

documentation, and the planning that Andy Maner discussed before, we are committed to doing this task and we think we have

the resources necessary. And I think in this regard if we do not I

do not think we will be shy about it because, again, we are very

committed to this and we are developing right now the 2007 budget

request, so we will sort of look and have some time under our belt

to see what it takes and be sure that we ask for the resources in

2007, as well. Get it in 2006, started the planning in 2005, and be

sure that we are a watchful eye as we go into the 2007.

Mr. TOWNS. You have our attention, so now is the time to do it.

Secretary HALE. Yes, sir. I think most importantly for us is to

get the—as I know you all share this, as well—is to get the appropriations bill, be sure that we have the appropriate staff, the background, the folks that Andy has brought on board, and be able to

lead that effort.

Mr. TOWNS. Right. Thank you very much. I yield back, Mr.

Chairman.

Mr. PLATTS. Thank you, Mr. Towns.

I will turn to some of the audit findings, the 2004 audit findings.

Mr. Maner, one of the issues that jumps out is the ICE—Immigration Customs Enforcement—issue and the significant budget difficulties at the end of the year. According to the audit, ‘‘ICE experienced significant budget difficulties due at least in part to the late

preparation by the Office of the CFO of agreements to reimburse

if a cost incurred on other’s behalf. ICE fell seriously behind in

basic accounting functions. This condition is very serious for ICE

and for the Department.’’ I think that also then gets into Clark

Kent Ervin’s written statement about agents being unable to put

gas in their cars, pay informants, use their cell phones. Can you

address your understanding of the audit findings regarding failures

within your office?

Mr. MANER. Well, first of all, I think it is important to understand the situation at ICE in 2004 and the latter part of 2003. To

understand that you have to understand that ICE was not only

going through a very difficult but important merger, but something

else was happening at the same time that is often forgotten about,

and that is that the INS, an organization that existed for decades,

was being dismantled.

55

Both of these decisions were absolutely the right decisions, and

creating an enforcement bureau like ICE was the right decision.

This all was taking place last year. The 2003 appropriations did

not take into account the new structure, and the 2004 budget was

the first time where the budget actually was able to reflect the new

structures. The 2004 budget was just a basic estimation of what

the new Customs and Border Protection and ICE would look like.

So we spent—my office spent thousands and thousands of hours,

and I personally spent nearly 20 to 40 hours a week on this issue

for the better part of last summer.

At the end of it, some very good Government things have happened. First of all, ICE was going through this merger. They were

also the Department’s accounting service provider. So we were very

much attached at the hip as this was going on but it was not all

bad, and I did read Mr. Ervin’s statement and I have read a lot

of media reports about ICE, and I have heard a lot of the lore

about how they cannot wash their cars, cannot get their gas, that

sort of thing.

And some of that may be true. A 15,000-plus person agency. I

can tell you their enforcement numbers for that time period were

higher than they had been before in terms of a lot of their drug

interdiction, alien removals, fugitive operations, that sort of thing.

So the agency was performing, but they were doing so under some

budget difficulties, which is why we were in a room trying to dismantle the regional structure and district structure of the INS,

make sure the money was in the right bureau. There’s no handbook

for it. It has probably never been done for the past 50 years. We

did it, put thousands of hours. It was the right thing.

And with the help of the Congress, I might say, and OMB—last

year we were able to infuse some cash into ICE to make it through

the year.

So everyone played a key part in making sure ICE was solvent

and was able to continue.

In terms of the specific piece you mentioned, which is reimbursable agreements, let me just say one of the good Government pieces

that Undersecretary Hale, myself, and the leadership wanted to

make sure we did with these new bureaus is that they not be allowed to reproduce and create new organizational structures. That

there be some shared services. That we not just say, oh, because

I am a new bureau I get my own HR shop, I get my own procurement shop. So we put into place, under Ms. Hale’s leadership, a

group of people to make sure that was happening. This has come

to be known as tri-bureau shared services. It began with all

through the year, and at the end of the year we had to put reimbursable agreements in place to reflect that. It took a long time.

It was the right decision. But, as you suggest in your statement,

it did take a little more time.

Not to presuppose a following question, but I do want to report

that in fixing ICE, which I know is important to the committee and

certainly all of us at the table, we do not want to just fix it in the

short term—in other words, make them solvent 1 year. We are interested in making sure they are an ongoing concern. So what we

have done is put into place a pretty aggressive people, process, and

system assistance package, if you will, to ICE, meaning they needVerDate 11-MAY-2000 11:14 Nov 18, 2005 Jkt 000000 PO 00000 Frm 00059 Fmt 6633 Sfmt 6633 D:\DOCS\24086.TXT HGOVREF1 PsN: HGOVREF1
56

ed new financial management leadership, we needed to be more involved in their processes because of course they were also our financial accounting provider. And then we probably need to look at

their systems, as well.

So the fix for them long term incorporates all three of those aspects, and I just want you to know—Mr. Skinner mentioned in his

opening statement new people we have put in, very hopeful for

that. Also, in the supplemental the Congress the administration

did for 2005, there was new budgetary and finance people included

in that. So people side, we are getting there. My office, sir, as you

and I dialogd last year, I think we are going to have times where,

of our sort of 10 big operating bureaus, some are going to be on

the left side of the bell curve, some are going to be OK, and some

are just going to be cruising along. Right now ICE is in that in

need part of their existence and we are trying to help them as best

we can.

Mr. PLATTS. I commend you for the approach of a long-term solution. We have had lots of hearings with lots of departments and

agencies and sound like a broken record that we are not looking

for heroic efforts at the end of the year that makes things look good

for a day and then we move on, but to truly get to the core problem

so we fix it permanently and have a long-term solution, so I agree

with that approach.

My understanding from the Inspector General’s statement is

there’s an acting CFO at ICE. Where do we stand with that position from, again, a permanent position, appointee? Is that in the

works?

Mr. MANER. Yes. They have three key financial positions. We

have put a budget director in there and a director of finance. Some

of these are SESers, some of them are not. Right now the budget

director is the acting CFO, and then they have to put a permanent

person there. So I suspect that will be done. As you know, sir, they

are also undergoing a leadership change at the moment and it is

certainly my belief that one of the first things we will talk about

with the new leadership is our recommendations and our suggestions of ways to help fill those permanently, but I can assure you

that they are in pretty good stead in terms of people right now.

Mr. PLATTS. Inspector General Skinner, you reference the efforts

there and ongoing efforts, but you also state that your current findings lead you to believe there are still some significant accounting

challenges or problems at ICE. Could you expand on that?

Mr. SKINNER. Yes. There most certainly is. As I speak right now,

we are currently working in ICE evaluating their accounting problems. I do not want to draw conclusions at this point in time. We

have not drawn any conclusions yet. But I can say our early observations suggest that they still have serious problems and it will

take time to work them through.

One of the most notable problems would probably be their financial reporting difficulties. We continue to find abnormal balances in

certain accounts that cannot be explained. Until they can get to the

bottom of why each month they are having substantial abnormal

balances, the problem is going to persist. That is what they currently are working on.

57

Mr. PLATTS. What dollar amounts are we talking about the balances that they cannot account for?

Mr. SKINNER. We are talking millions of dollars, substantial

amounts. If it was immaterial, we would not be raising a red flag.

These are significant amounts of money that cannot be easily explained.

Now, they have made improvements since last year. Those

amounts have been reduced. But still we have not really got to the

bottom of what is causing the balances to be out of sync. That is

what we are working on and that is what ICE is working on, as

well.

The new leadership they have in place has really added value

and has accelerated their ability to improve their accounting and

their financial reporting, but it is something that I think is going

to require close attention by the CFO, close attention by ICE management, and close attention by Department management all the

way up through the Secretary. If we want to get to the point where

we can have qualified opinions this year, at best, unqualified opinions in the out years, then we have to fix the problems that exist

in ICE.

Mr. PLATTS. Secretary Hale, what is your familiarity with the ongoing problems that we are still having, apparently millions of dollars unable to be properly accounted for? Because I certainly accept

Mr. Maner’s statements that no one is suggesting this has not been

a tremendous transformation, and 22 agencies, 170,000 employees,

18 material weaknesses inherited.

But we are 21⁄2 years along, and the fact that this late into the

2005 fiscal year we are still having end of month fund balance difficulties to the tune of millions of dollars causes me to believe apparently we are not throwing enough effort, manpower to get to the

bottom of it if we are near now the end of the third quarter of the

current fiscal year, the problem that we knew was a problem in

last year’s fiscal year. So your understanding of that issue?

Secretary HALE. I think I share both the IG and the CFO’s concerns about this and continue to sort of, mostly through the CFO,

again with the leadership there, talk about sort of the importance

of the financial management, being sure we have the resources

that are there and they take the appropriate steps.

We do two things in the Department. One, we have a CFO Council that Mr. Maner shares, and then I chair a Management Council

where we have talked about some of the issues and the importance

of this. We have actually talked about sort of taking these kinds

of issues back again this month to them, both to the internal controls but also sort of where we are along the compendium so that

we can get ready. So I share your concerns. I share, I think,

Andy’s, as well as——

Mr. PLATTS. Are you aware of any specific reasons that have

been identified yet for the lack of accountability for millions of dollars?

Secretary HALE. I think it is, again, their sort of their statements

and they are continuing to try and align their accounts.

Mr. PLATTS. So your answer is no, you are not aware of specific

reasons for the inaccurate end-of-month accounts?

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Secretary HALE. Other than the systemic ones that we are continuing with their corrective action plan to try and work through

to be able to close the monthly accounts and be able to prepare the

statements. I think that is why we have had the corrective action

plans. We continue to work with them on those. So I think it is——

Mr. PLATTS. Mr. Maner, you apparently would like to expand on

that?

Mr. MANER. Always happy to, because I spent a lot of my life

doing it there. Again, there are still systemic problems at ICE and

it is not enough to say we inherited them from DOJ because some

of them are new. But what we have to do is—I just would not want

the committee to think otherwise. It is a people, a process, and a

system fix.

The things that are happening at month’s end and early close are

issues. I want to also salute a lot of the hard-working people at

ICE. They had a tremendous attrition problem right at the beginning—this is before I arrived—right at the beginning of the merger

where more than half of their senior financial management left

ICE, so to build the people back up who know how to do this, who

know how to do it like a drum beat, the things that happen every

night, the people who put processes in place, and gets the internal

controls because it is not just financial management people, it is

the special agent in charge that is in the field and how they work

within the financial system and financial confines. So it is totally

and utterly systemic that will only be fixed if we attack all three

of those areas equally. And I just want to assure you that they are

not looking at just one.

Mr. PLATTS. The example here with ICE, the conversation previously on the permanent CFO nominee, personnel challenges, Inspector General was referencing whether there’s enough personnel

within the CFO office to meet the demands we are placing on it—

given how important the mission of this Department is, no greater

important agency out there other than DOD, itself, and DHS and

DOD kind of go one in the same, because for the national government the most important responsibility we have is protecting our

citizens.

Education is certainly a priority, environmental protection, transportation. Protecting the lives of our citizens is the most important

responsibility we have. If there are management personnel challenges at the Department, I would expect that we would hear the

Secretary of the Department at the top of his lungs saying, I need

help over here, Mr. President, to get the best and the brightest

from whatever other department to this Department.

That is not happening. Because until we fix ICE’s financial problems, until we fix TSA’s financial problems, we are going to continue to spend a lot of money. And yes, the report numbers for ICE

look good, but what we do not know is how many people slipped

through, perhaps simply wanted to work here, perhaps wanted to

create harm here. How many did we not catch?

And so the fact that I hear that we are doing our best and—I

accept that at least half of your senior management at ICE, in the

midst of a dramatic transformation, that is a high hurdle to get

over. But, given the role of that agency and the importance of it,

it should be a Government priority. If it means we take somebody

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and say, ‘‘We are moving you from HHS, from Ed, from EPA, from

wherever, to DOD or to DHS,’’ that is what we need to do. And that

is not anything I have heard from the Secretary, from the President, from OMB, from anyone in a senior position of this administration. I hear that we are working on it.

Given that this is about protecting the lives of Americans and

making sure we are protecting their dollars so that we can then

spend those dollars on protecting their lives, working on it is not

good enough. Doing it is what is going to be good enough.

I do not mean that in an antagonistic way, because I truly mean

when I say we are on the same team. But I think the two of you

and Inspector General Skinner at the Department, Dr. Combs, this

is an alarm all of you should raise at the CFO Council meetings,

with Director Bolton, with Chief of Staff Card, with the President,

himself. You should all be raising that alarm that we do not have

the personnel that we need to do what we are being charged to do,

and then get their help in making it happen.

I do want to raise quickly a couple of specific examples, because

as we talked about ICE I think it is fair to say when we get to an

audit of internal controls that is going to help us get to the cause

of the problem such as we are seeing at ICE. Is that a fair statement? I would be interested actually in all of your opinions.

Mr. SKINNER. Yes.

Mr. PLATTS. That is going to help us get to the bottom of it.

Mr. MANER. Yes, it would.

Mr. PLATTS. To that foundation problem. And I think it epitomizes, no matter what the internal control audit cost, given that

we are unable to account for millions every month in their end-ofmonth balances, and then we get into some of the actual lost funds

at TSA and elsewhere, whatever it costs we are going to recoup it

very quickly.

I do want to raise specifically the audit on TSA, and if you do

not have the answers today you can followup with the committee.

That would be great. I guess this would be to both Inspector General Skinner as well as Mr. Maner and Secretary Hale.

Some of the audit findings, according to the news reports, my understanding is the audit, itself, has not been shared publicly yet,

that is an ongoing review for a FOIA request?

Secretary HALE. I think you are talking about the DCAA audit

of the TSA.

Mr. PLATTS. Of TSA. Right.

Secretary HALE. This is the contract with Pearson——

Mr. PLATTS. Right.

Secretary HALE [continuing]. Where there has been much newspaper publicity about it. If I could just have a couple seconds on

that, sir, and then I think you asked about sort of that audit, itself.

It is correct to say that the contract grew. It has also not been reported that we disallowed almost $140 million worth of those invoices that were submitted. The DCAA—the TSA asked to come in

to be sure that they looked at that contract.

It is important, I think, to understand because there is, like you,

no one in this Department that wants to waste American taxpayer

dollars and, far more importantly, wants to put the money appropriated to the front-line mission. But, I was not part of the DepartVerDate 11-MAY-2000 11:14 Nov 18, 2005 Jkt 000000 PO 00000 Frm 00063 Fmt 6633 Sfmt 6633 D:\DOCS\24086.TXT HGOVREF1 PsN: HGOVREF1
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ment of Homeland Security. It occurred during its standup when

it was part of the Department of Transportation. But, I have spent

a little time looking at that contract or not specifically at the contract but the circumstances around it. I do think it is important to

note that when they started that time and materials contract,

meeting congressional deadlines, but also being sure that, as the

scope changed, they did not know how many screeners they were

going to hire, so very clear management oversight and involvement

in that contract, when they met with the contractor, sort of went

through this process and then themselves decided to pull in DCAA.

So we have gone through that. DCAA is finished their audit.

That was the basis on which then TSA had to make their own independent decisions about how much of the Pearson money to ultimately pay. I know the Inspector General has been very involved

in that, as well. But we have not shared that publicly. There have

been some FOIA requests and they are going through the redacted

version of that. We would be happy to share, sir, with the committee under the appropriate circumstances.

Mr. PLATTS. Well, I would urge the public sharing of that information. The earlier the better, certainly with the understanding of,

if there are things that are sensitive relating to Homeland Security, to be redacted.

In the Secretary’s statements regarding the second stage review,

he said—under stewardship he said, ‘‘A commission to measure

performance—’’ which is what this audit was. It is measuring the

performance of TSA and its handling of the contract. That is how

I view performance, how do we operate this contract.

The Secretary said, ‘‘A commitment to measure performance and

share results.’’ So we have done an audit. What is reported in the

press is that the audit said we did not do a very good job in overseeing this contract and we should share that and say mistakes

were made and we are going to correct them.

Just a couple. I do not want to keep you here past this round of

votes. That is why, unfortunately, I am raising them here so you

do not have to wait.

One of the things highlighted, I do not know the substance of this but according to the statements in media, a $5.4 million claim

for 9 months salary for the chief executive of an event and logistics

firm that received a contract before it was incorporated and went

out of business after the contract ended, a contract for the hotels

that were acquired instead of using the testing centers where the

contract gave them 10 percent on whatever the charge for the room

was, so there’s incentive to get higher room costs and they make

more money.

I think that is one of the things that was identified in the audit

that perhaps the Inspector General is aware of, point after point

of terrible oversight of taxpayer dollars. If there are a viable and

logical answer to some of these statements, the sooner that is public the more trust that the public is going to have in what the Department is doing.

I realize TSA was not then under DHS, but it is today. So I am

not going to get into all the various points, but the news article is

pretty alarming if half of what is in here is true, and so I do urge

the public sharing of that information, and we as a committee look

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forward to having a chance to review that, as well, because the reason that article caught my attention and I set it aside—as you can

tell, I use blue markers, and I have lots of blue marks—is because

it to me is all about internal controls and the breakdown of internal controls regarding what was originally a bill of $800-some million, I believe, that we negotiated down to $700-some, I believe.

Secretary HALE. I think it would be interesting, sir, and we

would be happy to set this up, to have the committee and even

yourself, sir, hear about that contract.

Mr. PLATTS. I think that would be very helpful to us.

Secretary HALE. I think having listened to sort of the steps that

they took at the time as they were obviously right after September

11th in setting this up after that terrible tragedy, but also the

steps they have taken subsequent to that in their sort of acquisition process. I think both of those would be a very important sort

of set of information for this committee to have.

Mr. PLATTS. A final question regarding, again, if half of what is

in here is accurate, I am concerned, regarding the TSA contract or

the ICE. I think I know the answer to the question, but is anyone

aware of anyone who was demoted or fired for any of the financial

misdoings related to those two issues?

Mr. SKINNER. Congressman Platts, I can address the TSA issue

in the Pierson contract. We will be issuing a report probably within

the next 30 days addressing the TSA’s oversight and management

of that particular contract. I am not at liberty right now to discuss

the details of that report.

Mr. PLATTS. I appreciate that.

Mr. SKINNER. It is not public yet, but we will be making it public

hopefully in the next 30 days, and, of course, we will be delivering

it to this committee.

The report is going to be highly critical, obviously, but one of the

things we have to keep in mind, at that time, when that contract

was awarded, there were only 12 people working at TSA. There

was only one contracting officer at TSA to manage a multi-million,

almost a billion-dollar contract.

Mr. PLATTS. Terrible management breakdown.

Mr. SKINNER. It was doomed for problems.

Mr. PLATTS. Yes. And that goes to——

Mr. SKINNER. No question about it. But TSA has come a long

way and the Department has come a long way since then. They are

still building and improving, and we need to recognize that. Of

course, we are going to try to show that in our report—the steps

that have been taken since. The problems back to 2002 and 2003.

We are in 2005 now. That is the issue that we should be addressing: where are we at in 2005?

Mr. PLATTS. And that we learn from the mistakes of 2002 and

2003.

Mr. SKINNER. Yes, sir.

Mr. PLATTS. And that is why I even raise it, is that we can do

a lot better in 2005 and 2006 if we make sure the internal control

breakdowns of 2002 and 2003 are not repeated.

Mr. SKINNER. Most certainly. This is a poster child for what not

to do to manage a contract.

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Mr. PLATTS. I apologize that I do need to run to get to a floor

vote. Secretary Hale, did you have one last thing that you wanted

to add?

Secretary HALE. No, sir. Thank you, again.

Mr. PLATTS. And the thanks is from us to you. In each of you,

sometimes I may be critical and try to ask some tough questions,

but it is because of that commitment that we all at the end of the

day get to a shared goal of doing right by taxpayers and, in this

case, right by protecting the lives of our citizens. I know each of

you are putting in incredible hours.

As a fellow dad with young children, Mr. Maner, I sympathize

with your wife. My wife sympathizes especially with your wife. But

we are grateful for your service and we will raise concerns when

we have them. But hopefully it is understood that it is seeking to

get to our shared goal.

Thank you each for your testimony here today.

We will keep the record open for 2 weeks for any additional information that we have requested. Again, we wish you well in your

efforts.

Thank you.

We stand adjourned.

[Whereupon, at 4:10 p.m., the subcommittee was adjourned.]

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